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WINNING BY LOSING - YEAR-END PLANNING FOR CAPITAL GAINS

November 15, 2004

Perhaps you have been blessed this year with a successful investment portfolio. Perhaps you have cashed out some of your winners. If you have a net capital gain, you may owe money in April. If so, those less-than-successful stocks in your portfolio are now a blessing in disguise. You can sell your loser stocks and deduct them to the extent of you capital gains, plus $3,000. It doesn’t matter whether the gains or losses are long-term or short-term – a long-term loss (i.e., on a stock held for more than one year) can offset a short-term gain, and a short-term loss can offset a long-term gain.

DON'T WASH THOSE LOSSES

Be careful with those losses. The “wash sale” rules say that if you buy a stock within 30 days before or after the loss sale, you don’t get to take the loss. You have to live without those Enron shares for 30 days if you want to deduct those losses this year.

   Example: Joe owns 10 Enron shares that
   he bought for $100.  He sells them for
   2 cents each on December 1, 2004, 
   realizing a loss of $998.00.  If he 
   buys another 10 shares of Enron on 
   December 20, (or November 20, for that
   matter), he doesn’t get to deduct the 
   loss on his 2004 tax return.  But if 
   he buys the shares on January 5, 2005 
   – more than 30 days after the loss 
   sale – he can deduct the December 1, 
   2004 loss on his 2004 tax return.

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